Lance Allega - Vice President of Investor Relations Kevin Plank - Chairman and Chief Executive Officer Patrik Frisk - President and Chief Operating Officer David Bergman - Chief Financial Officer.

Randy Konik - Jefferies Edward Yruma - KeyBanc Capital Markets Inc. Robert Drbul - Guggenheim Securities Jonathan Komp - Robert W. Baird & Co. Jim Duffy - Stifel Nicolaus Omar Saad - Evercore ISI Michael Binetti - Credit Suisse Jay Sole - UBS John Kernan - Cowen and Company.

Good day, ladies and gentlemen, and welcome to the Under Armour Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, today’s conference is being recorded.

I’d now like to introduce your host for today’s conference Mr. Lance Allega, Vice President of Investor Relations. Sir, please go ahead..

Thank you, and good morning to everyone. Thanks for joining us on the call today to discuss Under Armour’s second quarter 2018 results. Participants on this call will make forward-looking statements. These statements are based on current expectations and are subject to certain uncertainties that could cause actual results to differ materially.

These uncertainties are detailed in this morning’s press release and documents filed regularly with the SEC, all which can be found on our website at uabiz.com. During our call, we may reference certain non-GAAP financial information, including adjusted and currency-neutral terms, which are defined in this morning’s press release.

We use non-GAAP amounts as the lead in some of our discussions because we feel they more accurately represent the true operational performance and underlying results of our business. You may also hear us refer to amounts in accordance with U.S. GAAP.

Reconciliations of GAAP to non-GAAP measures can be found in the supplemental financial tables included in the press release which identify and quantify all excluded items and provide management’s view on why this information is useful to investors.

Joining us on today’s call will be Under Armour Chairman and CEO, Kevin Plank; President and COO, Patrik Frisk; and our Chief Financial Officer, Dave Bergman. Following our prepared remarks, we’ll open the call for questions. And with that, I’ll turn it over to Kevin..

Thanks, Lance. Good morning, everyone, and thank you for joining us.

Today’s results demonstrate that we are tracking well against a multi-year transformation to build a stronger, leaner and more operationally excellent company, a company that is capable of supporting the incredibly strong global athletic performance brand that our team works tirelessly to cultivate, a brand that loves athletes, a brand that stays true, creates fearlessly and stands for quality, one that fights together, thinks beyond the obvious and is driven by a global team committed to the advancement of human performance.

As a human performance company, Under Armour’s mission is to make you better. Over the past 18 months, we’ve been working to make ourselves better, better as a company by methodically and aggressively driving through a substantial evolution of our operating model.

And while this work is not yet completed, the strategies and tactics we’re executing are producing greater agility, sharper decisions, and a tenacious view towards generating more consistent result through repeatable processes.

As we proactively address some of the underperforming areas of our business, including SG&A and infrastructure investments that were beyond our growth, improving our distribution and right-sizing our inventory, we are simultaneously continuing to invest smartly in innovation, in our digital, DTC and international businesses.

To ensure the most optimal navigation through this terrain, balance is critical. As is making sure that we are thrilled and holistic in this endeavor. Through expanded actions within our structuring plan, which Dave will discuss later, we are demonstrating this balance and discipline.

And as we continue to dig aggressively into all areas of our business, operationally, creatively and financially, we are one 100% cognizant of keeping our consumer, customer and shareholder commitments in equilibrium.

More than halfway through 2018, let’s take a moment to update the progress we have made against some of the larger transformational actions we’re executing against in terms of product, story, service and team. Starting with product and story.

When we build great product that delivers on UA’s SPF, style, performance and fit, and then connect that deeply with consumer through inspirational and relevant storytelling, we win. Starting with deep insights, we’re delivering industry-leading innovation that empowers athletes to perform longer, faster and stronger.

If you highlight so far this year includes the launch of UA HOVR Phantom and Sonic running shoes, our Project Rock and Misty Copeland training collections and the Curry 5 basketball shoe, all of which have experienced strong sell-through and are driving meaningful brand awareness, consideration and demand, supported by three comprehensive digital global campaigns were successfully rewriting our playbook with return-driven strategies.

These examples are also demonstrable of our commitment to performance and the largest category growth opportunities that we are focused on, especially running, training and basketball. And speaking of basketball, congratulations to Stephen Curry, who added his third NBA Championship Title in the past four seasons.

Coupled with his two MVPs, Stephen is a powerful Under Armour ambassador, who continually raises our game as much as his own. With an insatiable quest for improvement, speed and advantage, his work ethic and partnership push us to be our very best every time we show up.

Looking into the second-half of 2018, we’re also focused on improvement, speed and advantage. As we shift from a 21-month to a 16-month go-to-market calendar, the productivity gains we expect to see from SKU rationalization, supply chain initiatives, and overall process efficiency, our confidence inspiring as we look to the future.

Knowing the product innovation pipeline ahead of us, along the changes we have made to drive better assortments, tightened our inventory position and improved product flow, each subsequent season gets sharper and markedly more capable of meeting the highly discerning expectations of Under Armour consumers.

With our product and storytelling engine beginning to fire on all cylinders, we must also deliver impeccable service in seamless consumer experiences, blending data and analytics from our global segmentation study with an intimate understanding of our consumers’ decision journey.

Our refined go-to-market strategy is taking hold and should prove to be a key catalyst in establishing our next chapter as a great company.

Supporting that evolution is how we serve our consumers, whether directly or through a wholesale partnerships around the world, whatever and wherever they engage our brand, the significant ERP system upgrade with SAP that we did last summer, along with our ongoing supply chain initiatives give us improved decision making and a better ability to manage our inventory.

This increased stability, improved planning acumen and enhanced capability enabled us to fine tune and hone all aspects of our product cycle. And finally, over the past year-and-a-half, this team has embraced significant changes, both external and internal with a goal of becoming a great company capable of supporting our great Under Armour brand.

Our team has been running, pushing and digging in deep to ensure that we fully capitalize on this chapter to transform our company for future growth. Part of this change was recognizing the need for a seasoned veteran and partner to spearhead this transformation. Patrik Frisk, our President and COO, hit his first-year mark a couple of weeks ago.

Along with Dave Bergman and our executive leadership team, Patrik has been instrumental in helping us transform our operations and strategic playbook. From category management to our go-to-market strategy and regional alignment, we’ve been changing the way we operate to become better.

In the context of our transformation and where we are, we see the second and third quarter bottom line being the most negatively impacted by our planned restructuring charges. We are proactively making these difficult decisions on behalf of the long-term best interest of the brand.

And while transformation is never easy, our strategies are set and we are driving forward against our plan with our heads down producing and executing, and all the while keeping the strength of the Under Armour brand paramount in this ambition.

We are resolute in our goal to architect the long-term operating and financial model, capable of driving sustainable, profitable growth and returns for our shareholders. And in that respect, we look forward to holding an Investor meeting here at our global headquarters in Baltimore on December 12.

At that meeting, we’ll provide an in-depth overview of our long-term strategy and the key initiatives designed to drive growth and profitability through 2021 and beyond. And with that, I’ll hand it over to Patrik..

Thanks, Kevin. Over the last year, we’ve learned a tremendous amount about ourselves as a team and organization and ultimately, as an evolving, integrated ecosystem.

Now on the other side of standing up our category management structure, implementing new systems and reengineering our go-to-market process, we’re on the path to becoming a more efficient and effective company.

Our playbook is working, incremental progress is being made and we are putting ourselves in the best position to serve our consumers, customers and shareholders. Building on Kevin’s earlier point, key to executing this transformation has been our culture.

Our scrappy entrepreneurial DNA has been an absolute asset to striking the right balance between aggressive near-term actions to correct inefficiencies and long-term structural moves to produce repeatable, scalable outcomes. With these in alignment, we’re on the right path to reaching our true potential in the upcoming years.

To highlight one successful near-term strategy, on our fourth quarter call in February, we identified higher inventory levels that were built to support the second-half of 2017, which didn’t materialize the way we had originally anticipated and we planned to work down the first-half of 2018, and we expected meaningfully elevated inventories on the midyear growth rate that was consistent with our 2017 year and the increase of 26%.

Now on the first quarter call, we adjusted our mid-year expectations to be up less than 20%. This morning, we announced an 11% increase in inventory result that should demonstrate to you our commitment to setting ourselves up for a healthier marketplace in the second-half of 2018 and beyond. And that’s just it getting healthier, leaner, and stronger.

With our customers who want the most current assortment, improved service levels and turns and with our consumers who demand newness, innovation and availability or in some cases scarcity.

The additional inventory management actions we choose to employ don’t, of course, come with other cost, which you can see flowing through gross margin in our second quarter results and full-year expectations. Short-term pain for long-term gain. We’re managing the marketplace with more prudence and discipline.

This improvement in trend is not done as we expect high single-digit inventory increase at the end of the third quarter right on track for our goal of being up in the low single-digit rate by the end of the year.

All in, this proactive inventory strategy combined with the supply chain initiatives that we’ve discussed on previous calls around tighter inventory buys, SKU materials optimization and vendor consolidation gets us closer to a full model and line of sight toward longer-term margin improvement opportunities.

With respect to longer-term transformational strategies, following the adoption of our category management structure, new systems and our reengineered go-to-market process, the next logical step was to better align our regional operating model, specifically to three international regions.

With the appointments of Jason Archer as Managing Director of Asia Pacific, Manuel Ovalle as Managing Director of Latin America, and Massimo Baratto, as Managing Director of EMEA, along with the continued leadership of Jason LaRose, who leads North America, our regional structure is set.

Uniformity and coordination across our full regions and architecture that reports directly to me ensure strategic operational and financial discipline to play the long game with respect to driving optimal business results and leveraging scale, while protecting our brand. With that, let’s touch on how each of our regions perform for us in the quarter.

Revenue in North America was up 2%, or 1% currency neutral. This result was slightly better than our regional expectation due to additional inventory management actions and better than planned service levels.

In EMEA, revenue was up 25% on a currency neutral basis with strong growth across the wholesale and direct-to-consumer channels and particular strength in the UK, Germany, and Spain. Currency neutral revenue in Asia Pacific was up 28% with strong balanced wholesale and direct-to-consumer growth and continued strength in China, Korea and Australia.

And finally, revenue for Latin America was up 12% currency neutral. And in this region, we remained focused on optimizing our mix of the right partners and business models across the portfolio.

So to wrap it up after my first year at Under Armour, I’m extremely proud of the work we’ve done and appreciative of the partnership between Kevin, Dave and myself. We’re making the tough decisions to transform this company from a great brand with good operations to a great brand with great operations.

And I’ll turn it over to Dave to review our financials..

Thanks, Patrik. To start, I’d like to provide an update to our 2018 restructuring plan and the one-time items that impacted our second quarter and will impact our full-year. In February, we announced the restructuring plan of approximately $110 million to $130 million in pre-tax restructuring related charges for 2018.

In the second quarter, we recognized $85 million of these charges, including $64 million in cash and $21 million in non-cash related items. During the quarter, we identified approximately $80 million in additional opportunities to better align our cost structure with our long-term goals.

Inclusive of these opportunities, we now expect our 2018 restructuring plan to be approximately $190 million to $210 million. It’s important to note that the majority of these new items are related to additional long-term contract, facility, and lease terminations, of which the larger benefits impact 2020 and beyond.

We continue to analyze our evolving cost structure refine our plan. Accordingly, we anticipate completing our diligence and recording all related one-time charges by the end of this year with respect to the approximate $75 million in annual savings that we previously cited for 2019 and beyond.

While we do anticipate this amount to increase, we are not prepared to get more specific at this time as we assess the right balance of reinvestment into areas, including marketing, innovation and our DTC and international businesses. Moving on to our second quarter results.

I’ll start with revenue, which was up 8% to $1.2 billion, or up 7% if you exclude the impacts of foreign currency. By channel, our wholesale business was up 9% to $710 million, driven primarily by inventory management initiatives, including increased sales through the off-price channel, as well as continued strength in our international business.

Direct-to-consumer revenue grew 7% to $414 million, driven by continued strong results in our international and e-commerce businesses. DTC was 35% of total global revenue in the quarter. Licensing was down 16% to $21 million due to softer North American demand.

By product and segment type, apparel revenue increased 10% to $747 million, driven by training and running. Revenue for our footwear business increased 15% to $271 million, driven by running and team sports. Revenue for accessories decreased 14% to $106 million due to softer demand and actions to optimize our distribution.

And finally, our Connected Fitness business was up 12% to $29 million, driven primarily by increases in subscription revenue. Turning to gross margin. On a GAAP basis, we saw 110 basis points decline to 44.8% in the second quarter, as inventory management initiatives flow through the P&L.

Excluding the restructuring, which contained about $6 million of inventory impact, adjusted gross margin was 45.3%. To walk through the components, adjusted gross margin was negatively impacted by approximately 240 basis points of channel mix due to a higher composition of off-price sales related to inventory management initiatives.

This was partially offset by about 170 basis points of benefit from product cost improvements and changes in foreign currency. SG&A expense increased 10% to $553 million, driven by continued investments in our DTC, footwear and international businesses, along with a reserve related to a commercial dispute.

Additionally, there was a meaningful shift to marketing expenses associated with our new training campaign into the second-half of the year. Inclusive of $85 million of planned restructuring charges recorded during the quarter, our operating loss was $105 million. Excluding the charges, adjusted operating loss was $20 million.

Interest and other expense was $17 million, which was impacted by changes in foreign currency. Our effective tax rate for the second quarter was 22%. Excluding restructuring charges and a refinement to our 2017 one-time U.S. tax reform impact, the adjusted effective tax rate was 8%.

And a reminder, the weight of discrete international items recorded in certain foreign markets are particularly impactful to our effective tax rate in periods like the second quarter, which has smaller consolidated pre-tax income or loss levels. Taking this to the bottom line, net loss was $96 million and diluted loss per share was $0.21.

Excluding restructuring impact, adjusted net loss was $34 million and adjusted diluted loss per share was $0.08.

On our balance sheet, cash and cash equivalents were up 19% to $197 million, total debt was down 18% to $779 million, capital expenditures were down 59% to $34 million, and inventory was up 11% to $1.3 billion, a significantly lower growth rate versus last quarter. Turning to our 2018 outlook.

We now expect full-year revenue to be up approximately 3% to 4%, with international growth of greater than 25%, being offset by a low to mid single-digit decline in North America. From a product perspective, footwear is still expected to grow at a low single-digit rate.

Apparel is now expected to be up at a mid single-digit rate, reflecting additional inventory management actions. And within accessories given softer demand and work we’re doing to optimize our distribution, we now expect a low single-digit rate decline for the year.

Given the strategic decision we made to accelerate our inventory management actions, coupled with changes in foreign currency headwinds that we’re facing in the second-half due to the strengthening of the U.S. dollar, we’re expecting our gross margin to be in line or down slightly against last year’s 45%.

Excluding the restructuring charges, adjusted gross margin is now expected to be up slightly, as benefits from product cost and lower planned promotional activity are offset by inventory management actions. SG&A is still expected to grow at a mid single-digit rate.

Given the expansion of our 2018 restructuring plan, we now expect an operating loss in the range of $50 million to $60 million. Excluding the restructuring, there’s no change to the expectation that adjusted operating income will reach approximately $130 million to $160 million.

And finally, with no change to our expected 25% to 27% full-year adjusted effective tax rate, adjusted diluted earnings per share stays in the range of $0.14 to $0.19 for 2018. With respect to the balance of the year, we expect third quarter revenue to be in line to slightly down versus last year.

Third quarter adjusted gross margin is expected to be down approximately 50 basis points due to continued inventory management action.

This should be followed by an expected fourth quarter improvement due to anticipated lower composition of off-price sales and higher DTC mix, coupled with continued product costing improvements, primarily due to supply chain initiatives.

SG&A is expected to be up at a mid-teen rate in the third quarter, driven by the marketing shift I mentioned earlier and continued efforts to support our global UA HOVR and training campaigns, as well as stores expenses associated with the expansion of our international DTC.

Third quarter adjusted operating income is expected to be approximately $75 million to $80 million, and adjusted diluted EPS is expected to be $0.11 to $0.12.

Finally, Patrik will walk you through inventory, but to revisit, we’re up – we were up 27% at the end of Q1, up 11% as of June 30, and Q3 should be up at a high single-digit rate on our way to a low single-digit increase by the end of 2018. That concludes our prepared remarks. So with that, I’ll turn it back to the operator for your questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Randy Konik with Jefferies. Your line is now open..

Yes, thanks a lot. Question for Kevin and Patrik.

Can you give us your – both of you give us your thoughts on how you see the overall state of the business and the health of the Under Armour brand? And then you continue to tell this nice story of – being a better run company, and as that continues to unfold here, maybe give us some color on what kind of KPIs you’re looking at to measure yourself against to continue to get better and better each quarter here? Thanks, guys..

Yes, I think – hi, this is Patrik. Yes, I think, in terms of the state of the business, I think, what you’re seeing now is definitely a stabilization, right? And especially as we look at our North America business, we feel very good of where we are right now in North America and really confident as we look ahead.

And as it relates to the brand, since I got here a year ago, we’ve invested heavily into consumer insights.

We have given you guys some information around the work that we’ve done around global segmentation, understanding where the consumer is in relation to the brand and we’re measuring ourselves and holding ourselves accountable to the measurements that relates to that work that we’ve done.

So we’re looking very deeply at things like brand awareness, consideration across the world. And I think one of the great things that we’re seeing right now in North America, for example, the brand is stable. And in our international regions, both brand awareness and consideration is growing very fast.

So this get big fast strategy that we’ve had in North America and also are – having now in international and the way that we’re rolling out, for example, in China, the premium expression through our brand houses is certainly paying off in combination with the increased marketing spend around being truly 360 degree digital, and then – and we believe that’s one of the things that’s really starting to move the needle for us.

So we’re holding ourselves accountable to the KPIs and we’ll talk a lot more about this at the Investor Day towards the end the year.

But we’re very, very confident of where we are right now and with the operational work that we’re doing around making sure that we have the right amount of SKUs and that we’re able to drive higher efficiencies in the back and in terms of how we think about the number of vendors we have. And in our cost base, we’re feeling really, really confident.

So I don’t know, Kevin, if you want to add on a little bit to that perhaps..

Yes, thank you, Patrik, and Randy, thank you for the question. And I’d like to start by just saying that, we’re incredibly sober as we think about you asking that question to us. What I’ll tell you this, is that, number one, I believe as well as I do many others believe that Under Armour is a great brand. I think, we’ve proven that.

And one thing is certain is that great brand and door and they see many chapters in our lives, and we certainly live several of those to our first 13 or nearly 14 years as a public company. First and foremost, I want to reiterate the fact that we are playing the long game.

And what we’re relying on is the strength of the innovation pipeline, A, that we’re putting out to market and you’ll see it more and more and continue to accelerate and watch that momentum drive. And one thing that is certain that we’ve learned over our 20-some-year history as a company is that great product wins.

That is it at the end of the day and that’s what established and built this brand. But in addition to a great product, we’re now also driving operational discipline.

We’re looking to make it a true core competency for the business that I believe and we believe will really truly unlock the clear potential that this company has, and the good news that we’re making great progress against it. And so hopefully, you see that through things like our inventory and issues that we’re attacking.

What we believe in – and the proof point for that is, when we do make great products, the consumer comes and HOVR is probably a great example and we’ve used that a lot.

But the fact is, we put product in the market in the first-half of this year at $110 or $140 price point, and we sell great sell-through and product at the consumers and high demand for. We call that the trifecta, I mentioned in my script. The style, performance and fit. When we get those things – three things right, we’re going to win.

The brand position for Under Armour is really simple. We have a reason for being, when you think about brands, because when we say great brands will endure, the reason for Under Armour is that, every product does something.

We lean on this performance mentality as a company and as a business, because when you put up Under Armour product on, your natural question should be, well, what does it do. And the fact is, it should make you better.

We’re also an authentic story founded on the field of sports, and that’s something we think that grounds us for a very, very long time. Our ambition that we have as a company is to be the world’s greatest performance brand. And we believe that, that mindset, as we said before, is going to prove to be our most important strategy.

And we’re looking forward to expanding on that as well at our Investor Day in December..

Appreciate the color, guys. Thank you..

Your next question comes from Edward Yruma with KeyBanc Capital Markets. Your line is now open..

Hey, good morning, guys. Thanks for taking my questions. I guess, first, you kind of touched on this in your last answer. But obviously some good storytelling on footwear.

Outside of Curry, Project Rock and HOVR, how broad-based is the strength, or are those three franchises driving the growth? And then second, I noticed in the cash flow statement, there was a purchase of equity method investment. Just wanted to understand what that was? Thanks so much..

So I’ll take the first part of that then you can tap in on the equity part, Dave. Yes, there is a broader success for us in footwear. We talked a lot, of course, about our marquee initiatives that are driving the top end.

But the reality is, as we have talked to you guys about before, our segmentation wasn’t done as well as it could have been done, I guess. If you look back into the end of 2016 and early 2017, as we did increase our distribution into more channels. We believe that as we turn the corner into 2018, the distribution segmentation has been more optimized.

And we’re seeing great success at other price points, too. Kevin mentioned HOVR at $110 and $140, and Curry is, of course, up there too as well as Rock. But when you look below $100, we also have seen great success and great traction also at the $80, $90 price point. So there is more foundational success there in footwear than we usually talk about.

And we’re looking forward to giving you a little bit more color on that as we work towards Investor Day.

And as we think about the future, we’re working, of course, to make sure that we’re optimizing that segmentation globally, which is also starting to show us that we can be competitive across the range as it relates to whole channel and price when we segment correctly. But it has to be the right SPF solid performance and fit, like Kevin said.

We make the great product with the right design, we win..

Kevin Plank:.

It’s important that we win there. It’s important that we continue to drive and bring innovation. And beyond it are some of the things that you don’t hear about a lot, and it’s our Fortis and Slingflex and Shift and Road that we’re getting price points.

But we’re not down, where we want to focus in some of those marquee price points particularly as it relates to the appropriate distribution and hitting that sweet spot of $90 price points in sporting goods. And some of the other things that we can push in with the mall guys.

So we’ve also, I think, driven a bit of innovation through places like our UA icon project. So being relevant and this is a product that you can go online you can order product and you can custom make footwear for yourself and it’ll deliver within four weeks.

And so we’re quickly looking to drive that timeframe down and getting it into something where consumers can order it within just a few weeks.

So we’re pushing that, and I think also we’ve seen a lot of light and bright spots from places like our sports style collections, 24/7, Drift, Real fit, Remix and some of these other franchises we’ve been building..

And this is Dave. To the second part of your question on the equity investment that’s in the cash flow. What that relates to is, if you recall, we have a license partner that runs our business for us in Japan, they’ve been a phenomenal partner for many years. And we had a small interest in them. We increased that interest to 29.5%.

As their license agreement was coming up for renewal, we thought it was a great time to take advantage of that renew, increase our ownership and with that also bolster our shareholder agreement to make sure we even had more protective provisions involved as we continue to work with them and expand in that region.

So we just took advantage of that opportunity and that’s the increase there you see in the equity method..

Great. Thanks so much, guys..

Thank you..

Your next question comes from Bob Drbul with Guggenheim Securities. Your line is now open..

Hi, good morning. Just wondered….

Good morning..

…good morning –on – can you talk a little bit about the women’s business and the progress you’re making there? And I guess, the second question, as you mentioned, getting some of the product cleaned up through off-price, what is the level of off-price and where do you see that if you look out 12 months from now as well? Thanks..

So – hi, Bob, this is Patrik. I think, as it relates to women specifically, we’ve done a similar work in women’s that we’ve done in our other product categories as it relates to making sure that we move forward, we’re segmenting that product better.

We’re being more diligent about how we think about SKUs, how we think about innovation, and we’re seeing a rejuvenation in our women’s business, especially as we look into our international business. And we’re very bullish about where we see that business moving in the future. It’s still a great opportunity for us.

And I believe that as we think about, especially the work that we’re doing with our international teams in China and in Europe, that is a an enormous opportunity for the brand across many different silhouettes and also across our footwear.

One of the great things about the HOVR that Kevin talked about before, that’s both just men’s and women’s silhouettes and they’re working well for both gender. So it’s not just an apparel initiative for us anymore. It’s truly a head-to-toe approach.

And we’re feeling that we’re getting the traction when we have the right product with right segmentation, right marketing in the right channel. So feeling really good about that. I don’t know if you want to add something about inventory, Dave..

Yes, Bob, relative to the inventory, I think, sales for the off-price channel are probably more of a peak in Q1 through Q3 and then tapering off a little bit in Q4 as we’re getting ahead of it.

So we’re – I would say, full-year is slightly higher than prior year relative to that channel, but it’s really helping us drive down the overhang of inventory that we spoke to relative to 2017 and setting ourselves up to be clean going into 2019. And the off channel partners that we’ve used have been fantastic partners and how we work through that..

I think, if I just add some color to that, Dave, I think, the other thing that you – that we’re also doing is, we’re making sure that our future buys are getting tighter as well.

So we’re really working to make sure that operationally we’re tightening up our operating mall to ensure that we’re buying the right amount of inventory going forward to make sure we’re not getting into the same situation again..

Great. Thank you..

Thanks very much, Bob. We just want to make sure that we understand the opportunity we have in women’s is obviously one of the largest white space as we look at as a company. We’ve also been able to establish $1 billion business there, but we recognize that we’ve been somewhat inconsistent.

What we do have there is, we own the base layer for that female athlete and it’s her bras and her bottoms. And so we want to double down there..

. :.

Good luck..

Our next question comes from the line of Jonathan Komp with Baird. Your line is now open..

Yes. Hi, thank you. Dave, I wanted to follow-up on some of your comments around the guidance and maybe looking big picture on the year. I know you over delivered the profit targets for Q2 maintained the full-year outlook.

And I wanted to ask about your overall confidence in the outlook, if that’s changed at all, especially given some of the remarks about Q3 and kind of the implied margin improvement that you’ll need in the fourth quarter.

If you could talk about the confidence there and maybe a little more color on the drivers of that and permit later in the year?.

Sure, Jonathan. When you look at the full-year, I think, the message that we’re trying to get across is that, we’re basically executing on the plan we laid out six months ago with a few minor changes. One is, we wanted to more aggressively get after the inventory overhang we’ve been using the off-price channel more so to do that.

And that’s one of the pieces of the lift in Q2 and full-year. We also have had a little bit better than expected service levels, as we continue to or supply chain continues to optimize how we work within our new ERP system. We were a little cautious in those forecasts, and so we’re doing a little bit better against that.

So it’s those two pieces that really overdrove Q2 a little bit and is also part of the race or the larger part of the race for the the full-year. So high level.

We’re still driving through the same plan we laid out six months ago, which we’re excited about, because we’ve been a little more aggressive with working down the inventory through the off-price channel, you see that pressure in our gross margin rate, which we’ve guided a little bit lower than what we’ve guided to over the last two calls.

But then at the end of the day between the revenue lift offset by a little bit lower gross margin, your bottom line is pretty much the same.

So we’re still executing on the same plan as we go through the year, and we think about some of the quarterly flow in looking at Q3 and Q4, for the gross margin, for example, we’re guiding to it down 50 basis points in Q3, which implies a pretty big raise in gross margin in Q4.

And when you really look at that, Q4, from day one, we planned that Q4 was going to be our largest gross margin rate improvement, the largest factor being significant supply chain initiatives that we initiated last year that really take hold within our later fall winter 2018 product assortments and also our spring/summer 2019 product assortments.

So those positively impact Q4 selling margins for us. Also, we’ve had three quarters of – in a row higher off-price channel sales that are going to start to tail off in Q4, as we’re getting ahead of that inventory situation. So that obviously helps year-over-year margin in Q4 as well.

And then lastly, we’re planning Q4 North America to be a little less promotional than what we did last year and really trying to stay brand right in premium. So all those things are really helping Q4 gross margin. We think about that Q3 and Q4 flow that I mentioned..

I would just add, Dave. We’re also – we’re actually planning in promotions down also in Q3, the whole second-half actually..

Okay, that’s helpful. And if I could, just a broader question for Patrik or Kevin. I’m curious if they have any more insights on the degree to which the product pipeline is filling maybe more beyond 2018, given the lead times there.

But any more color at a high level kind of state of the multi-year pipeline and maybe what to expect as we look out in the future years?.

Yes, we’re really excited about when we think about the future. And part of that is, because we’ve also been as we’ve been building our commercial go-to-market and making that more robust, we’ve also made sure that we’ve actually moved part of that up into our innovation funnel.

So we’ve been working simultaneously on both the go-to-market for our commercial engine and for our innovation engine, making sure that those two engines are tied at the hip.

So in other words, driving innovation calibrated to the work we’re doing with consumer insights and our commercial engine making sure that we’re stacking up innovations and platforms, future franchise building, if you like, for years to come.

And when we look at it today and we think out in 2019, 2020, 2021 into the next three years, we will have a steady drift or launch, if you like, of great innovations and platforms that we’re now going to be able to actually commercialize as they drop into the commercial calendar.

So we’re getting much more diligent about that process and how we do that. We invested heavily into our footwear innovation engine, for example. We opened up our Portland office in August of last year, that’s now getting up to speed. It’s almost a year in. We have great people, great staff, great innovation going on out there.

We have our lighthouse facility here in Baltimore, where we’re doing a lot of our apparel innovation, that’s now also fully up to speed under Clay Dean’s leadership. He’s been here now over a year.

So the combination of great people, great structure, great process marrying the innovation pipeline with the commercial pipeline putting those two things together and really planning our business and tying it into our supply chain makes us very confident that product is going to come out of Under Armour in years to come.

It’s going to make you better and it’s going to be product that you never knew you needed, but once you have it, you can’t live without it..

Yes, I appreciate the insights. Thank you..

Thank you..

Thanks, Jon..

Thanks, Jon..

Your next question comes from Jim Duffy with Stifel. Your line is now open..

Good morning..

Good morning..

I’m hoping for some perspective on the composition of the inventory as we see the month into the second-half of the year.

How much 2017 inventory remains to work through? And how are your levels of spring/summer 2018 access as you exit the season?.

Yes, Jim, this is Dave. We normally don’t really break down the break between the seasonal inventory. But what I would tell you is that, the off-price channel that we’ve been driving through to help with the inventory overhang has mainly been relative to 2017 products. So we’re really getting pretty clean on that as we move through the year.

And some of the more current 2018 product, we’re continuing to move that through our normal channel. So overall, health of the inventory is fairly good. It’s still more than what we want and we’re going to continue to actively manage that down and continue to work through the operational discipline to not create as much excess inventory going forward.

But there’s not a lot of older inventory remaining. It’s pretty healthy what is left on the balance sheet and then we’re going to move through it..

Okay, very good.

And can you guys speak in more detail about some of the additional restructuring opportunities identified? What’s the nature of some of the lease and contract terminations? Why did you feel it made sense to exit those agreements? And what was the kind of a financial analysis associated with that?.

Sure, Jim. A couple of things there. As we continue to kind of dig through the year to really make sure we’re right-sizing the cost structure and kind of optimizing our SG&A to be able to invest more in the areas of higher return and pullback or cut back on areas with lower return.

There are a few stores in North America that we’re going to be addressing that we weren’t originally looking at. But the bigger we dig in, the more we’re kind of uncovering some things that we think can really help the long-term and those have some longer tails for them.

Also relative to distribution facilities, those plans take a few years in the making. And so some of those plans we laid out when we were at a higher revenue trajectory versus where we are right now. In addition, the supply chain initiatives are driving a significant reduction in our SKUs going forward.

So the combination of those two things as far as right-size revenue in our plan and right-size our SKU rationalization are two of the big driving forces that are allowing us to optimize our distribution facility space and therefore, exit a few spaces that are less efficient for us and make sure that we’re focusing only on the bigger more efficient boxes that we really need for the future.

We also continue to dig deep on marketing and making sure with our ROMI work, our return on marketing investment that our dollars are in the right spot to align with our long-term strategies. And so we’re addressing a few of those areas as well. And then also we’ve got a business model change that we’re in the process of working through in Brazil.

Brazil has been a little challenging for us with the economy as it has been for others. But also as far as having local for local supply chain capabilities within the country, it’s something that we’re not completely up on yet as well.

And so finding a great partner to help us build the brand there and flipping that to a license model to do so to be able to reduce the volatility, increased profit margin is something we’re working through right now as well. There’ charges related to that change.

So a lot of great news relative to the long-term, but we’re not really going to disclose specific locations or leases or assets out of respect for the negotiation of those parties..

Very good. Thanks for that perspective..

No problem..

Thanks, Jim..

Your next question comes from the line of Omar Saad with Evercore ISI. Your line is now open..

Okay, thank you for all the information. Good morning..

Hi, Omar..

Wanted to ask you a little bit about Amazon. We noticed you guys are pretty active – the brand was pretty active during prime day in that period.

I’m not sure if you’re using it as a clearance channel or you have to build the brand there and build that relationship, any color there? I also wanted to ask about your partnership with the Rock, it’s kind of a unique interesting asset for an athletic brand.

If you bring in new access to new customer groups or segmentations, how you see your relationship with them evolving and over time and how you think it kind of contributes to the brand messaging globally? Thanks..

Hi, Omar, this is Patrik. Thanks for your questions. To begin with Amazon, where we – Amazon is a great partner to us. We’re not using Amazon at all as any sort of a clearing house.

We’re dealing with Amazon like we deal with our other wholesale customers and we have a global relationship with them in a sense that we’re also doing business with them in Europe and in India. So our business with Amazon is very healthy.

We have a strong relationship and the business continues to grow, and we will continue to work closely with Amazon into the future. We believe it’s a channel distribution that’s important for the brand and we have a very strong relationship.

As it relates to Rock, we’re very, very happy with the relationship with that athlete, actor, person and his team, and we’ve had great success with launching collections, both in apparel and in footwear and now also in headphones. We released headphones together with JBL about a month ago or three weeks ago, I believe it was.

Those are blowing out as well. And it’s a little bit of a different asset for us in terms of how to think about his enormous social media reach across the world. So we believe that he fits the perfect build, if you like, in terms of training, the training category for us, and he has global appeal.

So we believe that we have a lot of legs in terms of our relationship there going forward into more and more categories. And I’m sure that Kevin wants to add a little bit of color on the product side here and the relationship that’s been a long one..

Yes. Thanks, Omar, for the question is that, you’re right, it’s very unique and some one like the Rock is, he’s bigger than life in so many ways. He was just named the highest paid actor of all time. So he’s unique and he’s got a very sort of special thing that he brings to Under Armour.

One thing to remember with any of the partnerships that we have, what’s critical is that, we’re always driving brand. Everything we do has to be accretive to the brand is that as big as some of these partnerships are, building a Curry business that’s in the nine-figure range.

These are still things that are – they’re not the underlying strength that we need for the overall brand. They certainly accent it. And so what we want to do is we want to take bold visions with each of our unique assets like Stephen and like Rock. And the – these guys don’t think small.

They’re asking how do we build $300 billion, $500 billion dollar businesses. And so we want to make sure that we’re right-sizing and understanding what that means in the go-to-market, in the calendar, the new 16-month calendar as well that we can stay close and current to market with the demand of the consumer.

So like the Stephen Curry, it’s – the success that we saw with the Curry 4, what we’re seeing with the Curry 5 and then the excitement we have in the Curry 6 dropping at the end of this year. We want to build the ability to capture the market, but you also see us also capturing scarcity.

And I think it’s important that we balance those two things, as we’re not looking for a novelty business that’s here today and gone tomorrow, but how do we build businesses that could be sustainable and long-term.

So like the Rock headphones and there’s nothing like getting a phone call for doing the right job and saying, my headphones sold out in three hours, my shoe sold out in 30 minutes, and we recognize that and capture, but we also see a great opportunity there. So we want to be smart and prudent.

We also want to make sure that everything we’re doing is brand accretive. And the great thing about, I think, the partners that we brought on Board is the ones that are looking and interested in the overall promotion and growth of the overall health and strength of the Under Armour brand.

So that connection together is something that makes something really unique and we’ll continue to capitalize on wherever we can..

Thanks, guys..

Thanks very much, Omar..

Your next question comes from Michael Binetti with Credit Suisse. Your line is now open..

Hey, guys, thanks for taking my questions here. Can I just ask you a quick one on the model. You were talking about the $75 million of charges for lease termination.

I know you don’t want to get into a lot of details, Patrik, but could you just help us think about how many of the revenue-generating assets have already happened or already maybe impacting the direct-to-consumer number in the second quarter? And how much of that is still to come? And for full transparency, I’m asking, because I know third quarter is usually when you give us an initial look at 2019 revenues? And I want to make sure we’re thinking alongside you as we try to run rate our trends, if there are some incremental headwinds to come?.

Why don’t you give some more details?.

Yes, and Michael, this is Dave. A couple of things, I guess, we are addressing some doors in North America, but keep in mind the starting base of doors there was around 20. So there’s not a lot of doors in question. So even though that we are closing down some that are less profitable, it does not have a dramatic impact on our revenue for the year.

Obviously, it has a little bit more impact back-half versus front-half, but it’s really not dramatic and it’s already built into our guidance. So no real big surprise there.

And then relative to the other restructuring activities, they’re not – there aren’t really any that are tied to revenue other than maybe the change from Brazil from a full sub to a license. So obviously, that’s a lower revenue stream, but it’s a more profitable revenue stream.

So there is a change there and that will have a little bit of a back-half versus front-half impact as well..

Okay. And then I wanted to really talk to you about the gross margin. The guidance were down 50 in the third quarter, I think, since last time.

I think, since last year we started talking about 2018, it was framed at a pretty hard line between first-half and second-half related to off-price inventory clearing can see a lot of the progress you made in the second quarter. It sounds like there’s a little more of the component in the third quarter than you embedded in the guidance initially.

So conversely, is there anything you guys need to think about to navigate higher level of inventory that might be off your books, but I don’t see off-price channel in the third quarter?.

I mean, I think, it’s probably a fair statement that we’re doing a little bit more of the off-price in the third quarter than we originally anticipated as we want to be more aggressive in cleaning up the balance sheet before we end the year, so that’s definitely fair.

I also – relative to Q3, it’s a little bit of a lower growth rate for us internationally versus the other growth rates other quarters within the year for different reasons relative to shipment timing, distributor sales, and things like that and store opening dates.

And so our largest driver within international is the Asia Pacific region, which is also our highest gross profit region. So if international is going to be a little bit of a slow rate in Q3 versus the rest of the quarters, that also has a little bit of an impact on the gross margins as well.

So there’s a couple of different things coming into play as we wrap up the more aggressive inventory management actions as we get towards the end of Q3 and then move into a different place in Q4..

All right. So I guess, if I can sneak one more and I hate to have asked you so many near-term questions. As you think a little bit longer-term about the gross margin strategy, I think, it’s more interesting to think – I assume some of this will come at the Analyst Day.

But I think it will be great to understand your goal of moving the company towards higher levels of profitability. And I think we’ll be coming off this call here thinking sales are generally moving in the right direction for you, you’re managing costs. And if you’re driving sales, you’ll get some of your earnings back.

But a really big component of driving earnings out longer-term is the gross margin.

Can you just help us think bigger picture about where we’re headed on the big components of the gross margin as you look out over the next few years?.

Yes, Michael, obviously, we’re focusing on 2018 for this call. We absolutely appreciate the interest in 2019 and beyond and quite frankly, we are focusing on that incredibly throughout this year.

And a lot of the things we’re doing whether it be on the supply chain initiatives to help gross margin, whether it be getting cleaner on our inventory before we get into 2019, whether it be adjusting our – and really dealing with our cost structure, better product and better product, et cetera.

A lot of these things are going to add up to where we want to drive for 2019 and beyond. But until we get to the December Investor Day, we’re going to hold back on any details there..

Fair enough. Thanks, guys..

Thanks, Michael..

Thanks, Michael..

Thanks..

Your next question comes from Jay Sole with UBS. Your line is now open..

Great. Thanks so much. My question is on the order book for the U.S. wholesale business pushing into 4Q, as some of the off-price selling kind of rolls off a little bit and maybe you build up sort of more of that regular price business.

Can you just talk about what percentage of yours you expect for 4Q or in hand today and specifically within that core sporting goods channel?.

Well, I – this is Patrik here. We don’t normally comment on that.

But I can say that just building on what Dave talked about earlier, we’re rolling off heavier inventory levels into 2019 and that’s what we’re focused on right now is making sure that we’re doing what’s right for the business, which is making sure that we’re getting out of inventory and then making sure we’re not buying as much going forward, and making sure that we’re really being prudent with how we think about that..

And then, Jay, relative to Q4, based on a timing and lead time perspective, we’re looking at a quarter that’s primarily based on booked orders. So there is a fair amount of confidence obviously when you have booked orders in hand. DTC is a different animal, but we feel good about the KPIs driving there..

Yes, and we think through everything whether it’s our SKUs in terms of how we spend our money. I mean, there is about – there’s a constraint element and a focus element to everything we do at this point in time going forward. And as it relates to inventory, we want to make sure that we’re making the right decisions for the long-term.

And that in combination with better segmentation and stronger marketing and a better supply chain, we believe is going to set us up for success going forward..

Got it..

Jay probably one other thing – I’ll point out real quick that might help you a little bit relative to the model in the Q3, Q4 revenue flow. We are seeing some customer demand shifts to more closely aligned with seasonal changes.

And with that, we had some movement of shipments and orders that were in the Q3 timeframe last year that are now shifted a little bit into early Q4. So our year-over-year revenue flow Q3 to Q4 is a little bit different.

That’s part of what’s driving a little bit of a lower rate in Q3 and then a little bit of a higher rate in Q4 in our implied guidance on revenue..

Got it. That’s helpful. And maybe if I can ask one more on just marketing as a percentage of sales.

If you look forward for the rest of the year, where do you expect the right amount to be and what type? And to – how much do you feel like you need to spend to remind consumers that you are an on field – authentic on field brand and that sort of relates to sports marketing, whether it’s teams or leagues or players? How are you feeling about that right now in terms of your overall focus on cost control?.

Yes, I’ll just add a little bit of color on that. We were, as you know, fairly quiet last year in the back-half. We’re being smarter about how we spend our money. We’ve invested a lot as we’ve talked about in terms of consumer insights.

But the one thing we haven’t talked as much about yet and we’ll talk a lot about at the Investor Day is, we’ve also invested into a lot of ROMI work return on marketing investment as it relates to understanding how our marketing dollars have worked for us in the past, and how we should think about spending our money smarter as we go into the back-half of this year and beyond.

We’re also doing a lot of work around digital acceleration. What we mean by that is, we’re working through an understanding where we learn very fast on our digital investments, which is also helping us direct the marketing spend to the right way.

And we’ve learned a lot from what we did this year earlier in our digital campaigns around HOVR and the training campaign that we launched in May that was 100% digital.

So we believe that as we look at the back-half of this year, we’re doing more marketing in terms of making our dollars work better for us in the back-half of this year, which gives us a lot of confidence, too, that we’re going to be more successful in the back-half of the year. I don’t know if you want to add some color..

And Jay, let me add to that Patrik. I think, if you ask us a year ago, we’re not pleased with how loud we’ve been as a brand. And that’s something in getting into 2017 when we watched our model sort of shift and change. We had to make significant reductions to our SG&A in the current year of 2017, lowering that into 2018 and right-sizing our business.

And a lot of the things that we’ve done this year to put our business in the best position to be strong and healthy moving forward. It’s come at a cost, I think, to the amount of amplification or velocity of our storytelling. That’s something that’s still at the heart and the soul of this brand.

I use the word brand very carefully is, because brand is everything. And that it starts with a great product, and it starts with the amplification of the story that we put out about that product.

And so we feel very good especially about the processes we’re putting in place to go-to-market, the ability to deliver on time, where we’re not disappointing our consumers first and foremost, but also our customers and making sure that was there and showing up with all the engines firing.

And so I believe a lot of the work that we’ve done, you’re starting to see some of that. It will roll into 2019, no one is at anyway declaring victory. But we know the messaging that we’re capable of and that the consumer is expecting from us.

And I think you’re going to start hearing a much louder and a much more deliberate and a strategic thoughtfulness that goes into every dollar that we spend on the marketing side. And so my job is pressing, Dave, and working with the – Patrik uses the word constraint, but working within that, but there’s enough money for us.

And there’s enough story and perspective of this brand that will cut through for the consumer to really deliver something that will be unique to the market and very special that makes it Under Armour. Dave you want to add anything, okay..

No, I think we’re good..

Okay. Thank you so much..

Thanks, Jay..

Thank you..

Our next question comes from line of John Kernan with Cowen. Your line is now open..

Hi, guys, thanks for squeezing me in..

Hey, John..

Just can you give us an update on the SKU reduction plan and where you expect to be by the end of this year and heading into early 2019. I think, you said 25% reduction by the 2018, 2019 time period and a lot more than that going beyond that.

So just any update on where you’ll actually be for a SKU reduction standpoint by the end of this year as we head into early 2019?.

The two-year stack from 2019 to 2019 and the back-half of the 2019, we will be closer to 50%. So in the same way that we’re working diligently with our inventory. We are also making real strides and working diligently to make sure that every SKU works harder for us.

That also implies that we’ve done other things in terms of our materials dramatically driving down the amount of different types of materials that we use and also driving down trends that we use to make things like zippers, pullovers and all those different things as well beyond the 50% actually.

And when you then go beyond the SKUs, the materials and all of the trims and you go all the way into the back-end, the other thing that we’re also working hard on and Colin Browne is working on in terms of the vendor base.

We’re also consolidating the vendor base, right? So larger, better relationships with stronger partners to be able to make sure that we’re ensuring a stronger supply chain to deliver those products. All of that is happening and all of that is starting to take hold in a big way for spring 2019 and accelerating through 2019 into 2020..

It is helpful. And then just one more philosophical question, I guess, towards DTC. Has there been any change in how you’re thinking about that channel? Obviously, you spent some near-term term lease expirations and there’s been some cancel – cancellations and terminations.

Just wondering how you’re viewing the direct channel, both in the physical and digital space?.

Yes, I think – thanks for that question. It’s a really important one that comes back into how we think through the consumer experience for the global brand of Under Armour.

We’ll build over 200 stores in the world today this year and we will continue to do that kind of amount going forward and maybe even accelerating it, because we do believe that in every part of the world, there is a retail component that’s needed to actually meet the consumer as the consumer expects that 360 degree or always on experience with the brand.

And we’re looking at actually and we’ll be talking a lot about this at our Investor Day in terms of how we think about our different channels come together in the future for the brand to give that holistic expression and the experience for the consumer.

So we’re excited about what’s going on in our direct-to-consumer business, whether it’s our e-com business around the world or our store roll out and we’ll continue to invest into that pure retail format going forward.

And we’re doing a lot of updates on it right now and, of course, here in this area, as well as in our other areas we’re also investing into consumer insights. So we’re getting smarter about what’s actually going on in our stores in terms of how the consumer is shopping and then what the consumer expectation is.

So again, there’s an ability and opportunity, we believe for us to also understand that better and combining the information and insights in the store environment together with our online environment together with all of the work we’re doing around our apps, as well as our wholesale business really enables us and gives us an opportunity as a brand to differentiate and build a much, much stronger relationship we believe with the end consumer than most other brands..

Fantastic. Thank you. Looking forward to coming down to Baltimore on December..

Thanks, John..

Thank you..

And that concludes today’s question-and-answer session. I’d like to turn the call back to Mr. Plank for some closing remarks..

Thank you, operator. One thing I want to be clear is that, I’ve done a lot of these. This is actually my 51st call, and I want to be clear that on this call is that, no way I think are we declaring victory. We’re in the meatiest part of this transformation that we’re going through, and I think that’s coming through right now.

But we’re incredibly optimistic of what’s being built. We’re incredibly optimistic about the strength of this brand. And if there’s a message to come is, number one is that, we’re delivering what we said we would do.

But we’re also – we’re playing a long game, and that this is a multi-year transformation, where as Patrik has alluded to, we will always put the consumer first. And by doing that, we’re going to simplify our operations.

It’s – the hardest thing in business is keeping your business simple, and it’s one thing that we’re working incredibly diligently with our teams across the Board. And it is a full on effort and it is our internal team. It is our Board of Directors. It is our external team. It’s our partners, our customers that have been so important for us.

But we’re increasing our speed to deliver. We’re prioritizing our best and it’s based on return, but that always put the brand first, the brand, the brand, the brand. And I think if there’s a message to come through today is that we are stabilizing this business and that we’re doing it by right-sizing our inventory and our SG&A.

We’re also improving things within the operating model like our systems, our structure, the new go-to-market process and within that creating repeatable processes for us, our product pipeline, our storytelling, again the way that we deliver. But in all these things, the brand remains paramount.

Every product does something and that is what makes us specially unique to Under Armour.

Some of these short-term actions that we’re taking to correct some of the inefficiencies we’ve had, we believe will be the long-term structural moves that will actually ensure the fact that brand has the opportunity to become the world’s next great athletic brand. We’re incredibly excited about it. I’m passionate about the team that we have here.

I’m appreciative for Patrik joining us and celebrating his one year anniversary, but we have the pieces in place. It’s a matter of us executing at this time. But we’ve got a great opportunity and you can count on this teamwork and everything and given everything they have to make that happen. Thank you all for your time today.

We appreciate and look forward to updating you again in another 90 days..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program, and you may now disconnect. Everyone, have a great day..